Corporate Shenanigans at Healthsouth: Who

The stock was trading on pink sheets at $0.165 per share at the end of April 2003″ (8).

As noted above, one of the key factors involved in what happened at HealthSouth was the enormous pressure to perform in the increasingly competitive for-profit healthcare industry, pressure that directly affected the decisions that were made concerning the types of accounting practices that were needed to “deliver the goods,” at least on paper. Although absent from the foregoing list, Scrushys name appears time and again in the investigation that followed. According to Jennings, “Like Enron, WorldCom, and Tyco, HealthSouth placed tremendous pressure on employees to meet the numbers. In April 1998, CEO Richard Scrushy told analysts that HealthSouth had matched or beat earnings estimates for 47 quarters in a row” (8). The role played by Scrushy in engineering the corporate culture that would allow these estimates to be reported with a straight face became abundantly clear when the evidence was presented. For instance, Jennings reports that HealthSouths CFO William Owens (who assisted FBI and SEC investigators in return for leniency) wore a hidden “wire” during his meetings with his former CEO, with the excerpt that follows being a portion of the recordings between Owen and Scrushy that were played in federal district court in Alabama:

[if you] fixed [financial statements] immediately, youll get killed. But if you fix it over time, if you go quarter to quarter, you can fix it. Engineer your way out of what you engineered your way into. I dont know what to say. You need to do what you need to do. We just need to get those numbers where we want them to be. Youre my guy. Youve got the technology and the know-how. (quoted in Jennings at 8)

Indeed, even HealthSouths own accounting firm, Ernst & Young, testified that the company had deceived it and even produced fraudulent documents that HealthSouths management provided them as evidence that it had been duped.

An article in the Wall Street Journal included this quote from an Ernst & Young representative: “The level of fraud and financial deceptions that took place at HealthSouth is a blatant violation of investor trust, and Ernst & Young is as outraged as the investing public” (quoted in Weil 2003 at C3).


Taken together, it would seem that the jury was already in and Scrushy would find himself in the same hot water with his former leadership team, but this is not what happened. According to Brickey, “In what once appeared to be one of the strongest fraud cases against a high-level corporate executive, the prosecution of HealthSouth CEO Richard Scrushy totally collapsed. While other factors undoubtedly contributed to the jurys verdict of acquittal, one that clearly stands out is the indictment itself” (2006:397). The salient parts of the indictment to which Brickey refers runs the gamut of the accounting fraud. For instance, Brickey describes it as: “Sweeping in its breadth,” and adds that, “the more than eighty-count indictment (later pared down to thirty-six) included multiple charges of conspiracy, mail and wire fraud, securities fraud (under two different statutes), false statements, certification of false financial statements (including attempt), money laundering, obstruction of justice, and perjury” (2006:3997). While it would seem that many of these charges were justified and supported by the evidence, the jury found otherwise. According to Brickey, “After five months of sometimes mind-numbing testimony during a leisurely-paced trial, and after weeks of equally leisurely deliberations, the jury acquitted Scrushy on all counts” (398).

Works Cited

Brickey, Kathleen F. 2006. “In Enrons Wake: Corporate Executives on Trial.” Journal of Criminal Law and Criminology 96(2): 397-399.

Geyman, John P. The Corporate Transformation of Health Care: Can the Public Interest Still Be

Served? New York: Springer, 2004.

Jennings, Marianne M. 2004. “Incorporating Ethics and Professionalism into Accounting.

Leave a Reply

Your email address will not be published. Required fields are marked *